The Japanese yen has depreciated to its weakest level against the dollar in four decades, a milestone that reflects the sustained divergence between Bank of Japan policy and rates in the rest of the developed world. What makes the current situation unusual is that the yen is no longer behaving like a typical major currency — its sensitivity to interest rate differentials now resembles that of emerging market currencies like the Mexican peso or Brazilian real rather than peers like the euro or pound. This behavioral shift signals that the massive global carry trade built on cheap yen borrowing is under unusual strain.
A yen at 40-year lows means the global carry trade — where investors borrow cheaply in yen and buy higher-yielding assets elsewhere — is historically stretched. If the Bank of Japan intervenes or unexpectedly tightens policy, that trade unwinds fast, and assets that carry trades fund (high-yield bonds, emerging market equities, growth stocks) can sell off sharply and suddenly. Investors holding leveraged positions in risk assets should be aware that the yen is now a systemic pressure valve.
Next Bank of Japan policy meeting: ~late July. Japanese government intervention watch: ongoing, no fixed date. U.S. Federal Reserve next FOMC meeting: ~late July.
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